What should I know about investing?

If you are new to the world of investing you may be overwhelmed by all the information and all of the choices.Doing a little homework can help alleviate your anxiety and give you a place to start making investing decision that work the best for you.Here is what you should know about investing-

• Investing is making a choice-The difference between investing and speculation is that investors are making a (hopefully) well researched and thought out choice as to where to place their money. They have a long-term time frame and are not just playing a game. Investors know the underlying fundamentals of a company and its financials. They are investing for long-term gains.
• Investors understand the place of a stock-Do not allow yourself to be fooled into thinking the market controls your stock.Each stock is a reflection of the investment you have made. While all stocks react to the same outside influences, such as economic growth, interest rates and exchange rates true investors understand what stocks really are.Each stock reflects the valuation of an individual company, and each company has its own unique risks and opportunities.
• Investors deal with the uncertainty-The risk of investing comes with a lot of uncertainty but three things are always true.These are:

1. Stocks offer better potential returns than bonds or cash if you buy them for the long term.
2. Time can be your greatest ally if the companies you own have predictable growth.
3. Predictable long-term growth is rare but attainable if your companies have sustainable competitive advantage.

• Investors understand the importance of cash-Once you have done your research and narrowed your list of possible purchases to those few with competitive advantage, and then you can give some thought to what their stocks are worth. Keep in mind that your focus should be on cash flow, not on reported earnings. You should understand that the earnings that a company reports each quarter are precise but not always terribly accurate. These earnings are determined by accounting rules and some do not reflect reality. Because you are putting put up cash for as long as you hold that stock, you own a piece of a company's future. You will have a claim on a stream of future cash earned by that company. The challenge of this is in making a reasonable estimate of how significant that cash flow will be. When you analyze financial statements, you should pay particular attention to the Statement of Cash Flows in a company's annual filing (known as the 10-K), which reviews results for the prior three years. You should be sure to look at the "net cash provided by operating activities" and subtract the "capital expenditures" (sometimes called the "expenditures for property, plant and equipment"). This is a company's free cash flow, which will give you a pretty good idea of a company's financial success. The bottom line is that you want to make certain that the free cash flow has been positive over the past three years.
• Investors must stand by the courage of their convictions-True investors focus on great companies and have the confidence to stand by them when the news is not always great. In addition if you invest a certain amount every quarter or every year (known as dollar cost averaging), you will automatically be buying more shares when stock prices are low and fewer when prices are high. You should do this by deciding how much of your savings you want to invest in stocks and how much you are comfortable adding each year.